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Google Boosts Price of On2 Deal to $133M

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January 07 2010 @ 10:14

Google Inc.(GOOG) is revising the terms of its takeover of video compression developer On2 Technologies. The news comes several months after the two companies agreed to a merger, although the approximately $106 million purchase price struck many observers – and investors, as it turned out – as a steal.

To be sure, not long after the deal was announced in August, several On2 investors sued the company, saying it hadn’t sought the best price and was underselling itself.

Well, it seems the suits, which were settled in late October of last year, or the criticisms, hit a nerve. On Thursday, Google said it will increase the transaction size to about $133 million. The Web giant said it’s making the changes because its stock value has risen since August and On2 stockholders will now get better returns on their common stock.

Why Google is buying On2 remains a bit unclear. Some industry insiders say Google, which owns YouTube, will open-source On2’s technology, a move that theoretically would upend the online video industry. Others have stated the acquisition isn’t a big deal, that Google just bought a codec to catch up to Hulu and Netflix.

Whatever the motivation or planned use, Google next must seal the deal. Google and On2 originally expected to complete the details in the fourth quarter of 2009; now, the transaction must be wrapped by March 31, or else either company can terminate it.

Google’s stock was trading down .83 percent in mid-day activity at $603.21.

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